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Thursday, October 16, 2014

In our post about Flexibility, we posted that successful investors are able to sift through a constant flow of data and synthesize it in a way that aids their trading style. Oftentimes however, the data flow can become so heavy and overwhelming that it becomes self-defeating for even the best traders. For instance, when the market enters super volatile, choppy periods or undergoes a trend change, the data flow can easily lead to indecision and second-guessing.

You don't need us to tell you that the market has set up shop in one of those volatile phases for the time being. It is whipping around with zero regard. Wednesday marked the 7th day in a row in which the S&P 500 moved more than 1%. That hasn't happened since 2009. The S&P was down nearly 60pts during mid-day and we saw the Nasdaq fall as much as 100pts and climb all the way back to flat during the last hour of trading. Yet somehow, the Russell 2000 was up 1% for the day. Clearly, this is no market for being stubborn or stiff.

The conflicting signals being thrown at us demand flexibility. Here are a couple that have us appreciating the importance of risk management and the flexibility to move to the sidelines...

The last time the VIX has had a similar move was the sell off from March-June 2012 in which the S&P 500 lost almost 11% from peak to trough. The current moves in the VIX and S&P are near these levels now. Will the market hold these lows or are we entering a more volatile period ala 2011 in which the VIX exploded into the 40's and we had a 20% market drawdown?

Chart created using TC2000

On a positive note money continues to favor small caps as they have outperformed to upside the last few days versus large caps. Over the last week, the Russell 2k is actually positive while the S&P, Nasdaq, and Dow have all had loses greater than 3.5%. We find this as a potential positive as small caps have lead to the downside and are now are attempting to lead to the upside. A welcomed divergence. Another positive breadth measure is the % of stocks above their 10, 20, and 50 day averages in the IWM has been moving steadily higher as the index was hitting new lows.

Wednesday, October 15, 2014

As we've mentioned before, we're big promoters of the K.I.S.S. philosophy. We're certain that we're not the smartest people in most rooms so we strive to keep our process streamlined and uncomplicated in order for it to best fit our personalities.

However, we as traders must look at a ton of data. Sometimes an overwhelming amount and that's when things can quickly go from simple to unnecessarily complicated. All the data in the world won't do us any good unless we're processing it correctly and using it to either confirm or reject potential outcomes. Dr. Brett Steenbarger recently had another really insightful post on his Traderfeed blog. In Fluid Reasoning and Making Decisions the Right Way, Dr. Steenbarger observes that success is not so much a matter of making the right decisions, as it is making decisions the right way: fluidly, placing current observations into broader context.

We're often looking at the exact same data as other investors. There's only so much available and advances in technology have pretty much leveled the playing field. However, those that can process information properly and have the ability to be flexible in their thinking are often set to outperform the crowd.

To have continued success in trading, one must be willing to adapt as the markets are dynamic and expected outcomes can change rapidly. An earnings report or economic number can change the shorter term trend while something like Ebola, war, or recession can have huge repercussions longer term. While we have no clue if/how something like the current Ebola threat might impact the market's direction, it is something that we must account for. This is all part of staying flexible within an ever changing market and world.

Thursday, October 9, 2014

In recent weeks, we've had the fortune of participating in a series of events put on by the George Washington University School of Business. They focused on the management of the school's Ramsey Student Investment Fund and the students that oversee this endeavor.The Ramsey Fund is a $2.4 million portfolio within the University's larger endowment fund. Business school students enrolled in the University's Applied Portfolio Management course are charged with the day-to-day management of the fund and tasked with identifying the securities in which to invest. The course is steeped in the Buffett-Munger-Graham investment philosophy and approach and its "textbooks" include The Intelligent Investor,The Essays of Warren Buffett and Security Analysis. The course is entirely intended for students seeking careers in investing, portfolio management, financial analysis, etc.We met the Applied Portfolio Management course lecturer, Rodney Lake, at a conference this summer and he was eager to pair the Ramsey Fund students up with industry folks in the D.C. area. He realized that while our strategy and investing style is very different from the deep-value orientation of the Ramsey Fund, we did share the core beliefs of strict discipline, repeatable processes and risk management. Ryan and I agreed that collaborating with the GW group would be a rewarding experience for all parties involved. It wasn't all that long ago (ok, it's pretty far in the rearview at this point) that we were clueless college kids with zero hands-on money management experience. And that is such a silly notion when looked back upon. Why wouldn't all students training to become money-managers be given some real-life experience over the course of their education? In our opinion, the burden of having "skin in the game" whether that be real dollars or a course grade could significantly alter their learning experience.The headline event was the 8th Annual Ramsey Student Investment Fund Conference during GW's alumni weekend. In addition to providing the GW community with investing insights, highlights of student achievements and student-led stock pitches, the event featured a keynote address by Julie Monaco, Managing Director, Global Head Public Sector, Corporate and Investment Banking Division at Citi. Ms. Monaco spoke on the investment trends her group is seeing specifically within the construct of the world's largest pensions, central banks and sovereign wealth funds.It has most definitely been an enriching endeavor thus far and we hope to continue assisting the GW School of Business in any way we can.Cheers!

About Me - Ryan Worch (Virginia Tech Grad)

Ryan Worch (Graduate of Virginia Tech - Pamplin College of Business) began his career in finance in 1999 at Newby & Company as an assistant trader and broker. Mr. Worch is a registered investment advisor in the state of Maryland. Mr. Worch graduated with a Bachelor of Science in Business from Virginia Tech in May 1999, where he majored in Finance.

Prior to starting Worch Capital, Ryan worked for Metzman Capital Ventures. He held various positions working his way up to portfolio manager. He managed an in house portfolio utilizing a growth strategy.

Ryan Worch (Virginia Tech) founded Worch Capital in 2006 where he currently focuses all of his attention. Worch Capital specializes in the management of enhanced equity and alternative investment products.
Worch Capital, LLC (“the firm”) is a Registered Investment Advisor
based in Bethesda, MD. The firm also serves as the General Partner of a
long/short equity strategy.

Ryan is married to a wonderful wife and has four amazing children. Outside of the office Ryan is an avid sports fan and enjoys playing golf anytime he can sneak away.

Disclaimer

Please see disclaimer tab for additional language. This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell and securities.